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alstry (36.27)

SPF's Close In Sale

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May 18, 2008 – Comments (0)

Most builders have close out sales, not SPF.

SPF has a community in ritzy Indian Wells near Palm Springs, CA.  They opened the community of about 100 lots a little over a year ago and built five models and 8 specs.  The homes varied in prices around the $1.5MM range.

IN OVER A YEAR OF SELLING EFFORT, NOT A SINGLE HOUSE WAS SOLD!!!!

On Saturday, all 13 homes, models and  specs, were sold at about 43% off list.  Not bad, a million and a half dollar house for $750K in a great area.  The problem with doing that at the beginning of a project is that you have destroyed the comps for the remaining lots going forward and destroyed value.

If those lots were perceived at $500K, they would be lucky to be worth $100K today.  Does that seem like a good deal, raise $10 Million in cash liquidating homes at a loss and likely destroy over $20 million in land value?  I guess that is why SPF hired a new CEO with no homebuilding experience who promised to take urgent action, this must be a finance thing.

The above is representive of my beef with HBs today.  On their books they are representing land value at X, but everyone knows the real value is a fraction of X, even after impairments.  The builders know it, the analysts know it, FloridaBuilder knows it, and the sham continues to persist as hundreds of millions of losses keeps getting reported quarter after quarter.

In many cases land is basically worthless, in some cases, one could argue it has a negative value(you wouldn't take it for free) due to maintenance and buildout costs.  Until the foreclosures slow and the oversupply of houses gets absorbed, this condition is likely to persist....for much longer than many currently predict.

You think HOV just exchanged $600 million of 6% debt for $600 million of 11 1/2% debt voluntarily?  The banks have set a new bar.  The price to play in the HB game has just gone up!!!  Let's see how many can afford to play and how many will go away.

 

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